Social Security

The taxability of your Social Security benefit

Are Social Security  benefits taxable, were they always taxable?  Yes and no.  The real answer is that up to 85% of a persons Social Security benefit is taxable depending on their total income in a year.  Here is the full story.

From the Social Security website:

Originally, Social Security benefits were not taxable income. This was not, however, a provision of the law, nor anything that President Roosevelt did or could have “promised.” It was the result of a series of administrative rulings issued by the Treasury Department in the early years of the program.   In 1983 Congress changed the law by specifically authorizing the taxation of Social Security benefits. This was part of the 1983 Amendments, and this law overrode the earlier administrative rulings from the Treasury Department.

1983 Amendments to Social Security Law:  Taxation of Social Security and Railroad Retirement Tier 1 Benefits

Beginning in 1984, includes in taxable income up to one-half of Social Security (and railroad retirement tier 1) benefits received by taxpayers whose incomes exceed certain base amounts. The base amounts are $25,000 for a single taxpayer, $32,000 for married taxpayers filing jointly and zero for married taxpayers filing separately. Income for purposes of figuring these base amounts includes adjusted gross income under prior law, plus nontaxable interest income, and one-half of Social Security and railroad retirement tier 1 benefits. The amount of benefits that could be included in taxable income will be the lesser of one-half of benefits or one-half of the excess of the taxpayers’ combined income (AGI + one-half of benefits) over the base amount. The provision for including nontaxable interest income is intended to provide similar tax treatment of benefits received by individuals whose total incomes consist of different mixes of taxable and nontaxable income and to limit opportunities for manipulation of tax liability on benefits.

Includes in the definition of Social Security benefits for tax purposes workmen’s compensation benefits to the extent they cause a reduction in Social Security and railroad retirement tier 1 disability benefits. This provision is intended to assure that these social insurance benefits, which are paid in lieu of Social Security payments, are treated similarly for purposes of taxation.

Requires the Secretary of Health and Human Services and the Railroad Retirement Board to file annual returns with the Secretary of the Treasury setting forth the amounts of benefits paid to each individual in each calendar year, together with the name and address of the individual. Also requires furnishing of similar information to each beneficiary.

Requires that amounts equivalent to estimated quarterly proceeds from the taxation of benefits be automatically deposited in the Social Security trust funds and the railroad retirement account, as appropriate, at the beginning of each calendar quarter, subject to final adjustments based on estimates by the Secretary of the Treasury. Requires an annual report by the Secretary of the Treasury concerning the transfers under this provision.

IRS Publication 915

If the only income you received during 2011 was your social security or the SSEB portion of tier 1 railroad retirement benefits, your benefits generally are not taxable and you probably do not have to file a return.  If you have income in addition to your benefits, you may have to file a return even if none of your benefits are taxable. 

Base amount.

Your base amount is:

  • $25,000 if you are single, head of household, or qualifying widow(er),
  • $25,000 if you are married filing separately and lived apart from your spouse for all of 2011,
  • $32,000 if you are married filing jointly, or
  • $-0- if you are married filing separately and lived with your spouse at any time during 2011.

Generally, up to 50% of your benefits will be taxable. However, up to 85% of your benefits can be taxable if either of the following situations applies to you.

The total of one-half of your benefits and all your other income is more than $34,000 ($44,000 if you are married filing jointly).

You are married filing separately and lived with your spouse at any time during 2011.

You should note that the Base Amount is fixed by the 1983 law and is not adjusted for inflation.  For example, if the $32,000 base amount were adjusted for the cost of living since 1983 it would be $69,278 in 2011 rather than $32,000.

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